ICRA Report: Global LNG Prices Boost Indian Gas Market

21 Sep 2023 CW Team

The report by ICRA noted that LNG demand in China had weakened due to an economic slowdown, increased Russian pipeline supplies, and a rising reliance on coal. In the European Union, demand stabilized after an initial peak, attributed to milder winters, austerity measures, and an unfavorable economic climate. Japan and South Korea also experienced tepid demand due to their heightened emphasis on renewable energy and nuclear power. Conversely, the United States observed subdued domestic demand, and the presence of ample gas reserves resulted in a moderation of Henry Hub prices.

Sabyasachi Majumdar, Senior Vice President and Group Head of Corporate Ratings at ICRA Ltd, remarked that "Soft LNG prices are favorable for Indian gas consumers."

Nevertheless, he cautioned against event risks such as extended labor strikes in Australian LNG facilities and unexpectedly cold winters in the northern hemisphere, which could introduce volatility into spot prices.

Majumdar added, "Considering the limited investments in LNG projects in recent years, the availability of LNG will remain constrained until significant capacity additions are expected in FY2025-26. Meanwhile, structural shifts are occurring on the demand front, including the EU's growing focus on renewable energy, China's preference for coal, and Japan and South Korea's increased reliance on nuclear power. South Asian countries' LNG consumption remains highly sensitive to price fluctuations."

Similar to global gas markets, the Indian gas utilities sector, which encountered substantial price volatility and LNG availability challenges in the past two years, is now transitioning toward a state of relative stability. The report noted that softening LNG prices, increased domestic gas supplies, and government regulatory initiatives supported domestic market gas uptake. The report also anticipated robust growth in domestic production, particularly from the Krishna-Godavari Basin, which is expected to reduce reliance on LNG. The city gas distribution (CGD) and fertilizer sectors will continue to drive demand growth, aided by favorable policy support.

ICRA anticipated a healthy upturn in demand from the industrial sector due to soft LNG prices and rising domestic gas production. They also noted the positive impact of the Kirit Parikh Committee recommendations implemented in April 2023, which lowered domestic gas prices and improved the cost competitiveness of compressed natural gas (CNG) and piped natural gas (PNG) compared to alternative fuels.

Sabyasachi Majumdar concluded by stating that "Gas consumption in India is projected to grow by 6-7 percent year-on-year in FY2024, building upon a low base, supported by softer LNG prices and increased domestic gas production. The fertilizer sector will remain the largest consumer, bolstered by the commissioning of new fertilizer plants in H2 FY2023. The CGD sector, particularly the CNG segment, will continue to thrive due to its economic advantages over alternative fuels, as evidenced by strong growth in CNG vehicle sales in recent years."

In CY2023, global liquefied natural gas (LNG) prices exhibited a moderation trend after reaching record highs in CY2022. This shift was influenced by the expected growth of domestic consumption, projected to increase by 6-7 percent year-on-year. A report from ICRA attributed this trend to alterations in demand patterns among key consuming nations, including China, the European Union, Japan, South Korea, and the United States. The report by ICRA noted that LNG demand in China had weakened due to an economic slowdown, increased Russian pipeline supplies, and a rising reliance on coal. In the European Union, demand stabilized after an initial peak, attributed to milder winters, austerity measures, and an unfavorable economic climate. Japan and South Korea also experienced tepid demand due to their heightened emphasis on renewable energy and nuclear power. Conversely, the United States observed subdued domestic demand, and the presence of ample gas reserves resulted in a moderation of Henry Hub prices. Sabyasachi Majumdar, Senior Vice President and Group Head of Corporate Ratings at ICRA Ltd, remarked that Soft LNG prices are favorable for Indian gas consumers. Nevertheless, he cautioned against event risks such as extended labor strikes in Australian LNG facilities and unexpectedly cold winters in the northern hemisphere, which could introduce volatility into spot prices. Majumdar added, Considering the limited investments in LNG projects in recent years, the availability of LNG will remain constrained until significant capacity additions are expected in FY2025-26. Meanwhile, structural shifts are occurring on the demand front, including the EU's growing focus on renewable energy, China's preference for coal, and Japan and South Korea's increased reliance on nuclear power. South Asian countries' LNG consumption remains highly sensitive to price fluctuations. Similar to global gas markets, the Indian gas utilities sector, which encountered substantial price volatility and LNG availability challenges in the past two years, is now transitioning toward a state of relative stability. The report noted that softening LNG prices, increased domestic gas supplies, and government regulatory initiatives supported domestic market gas uptake. The report also anticipated robust growth in domestic production, particularly from the Krishna-Godavari Basin, which is expected to reduce reliance on LNG. The city gas distribution (CGD) and fertilizer sectors will continue to drive demand growth, aided by favorable policy support. ICRA anticipated a healthy upturn in demand from the industrial sector due to soft LNG prices and rising domestic gas production. They also noted the positive impact of the Kirit Parikh Committee recommendations implemented in April 2023, which lowered domestic gas prices and improved the cost competitiveness of compressed natural gas (CNG) and piped natural gas (PNG) compared to alternative fuels. Sabyasachi Majumdar concluded by stating that Gas consumption in India is projected to grow by 6-7 percent year-on-year in FY2024, building upon a low base, supported by softer LNG prices and increased domestic gas production. The fertilizer sector will remain the largest consumer, bolstered by the commissioning of new fertilizer plants in H2 FY2023. The CGD sector, particularly the CNG segment, will continue to thrive due to its economic advantages over alternative fuels, as evidenced by strong growth in CNG vehicle sales in recent years. See also: Bangladesh Set to Receive LNG Shipments in September and OctoberIndian Energy Exchange May trade volume rises 8% to 8,251 MU